Growth Through Bundling

Growth Through Bundling

By Malcolm Smith

Industry-leading, profitable energy retailers are bundling. By bundling value-added products along with energy, retailers are improving their margins and increasing customer stickiness. After all, 80% of consumers feel that they already have reasonably priced, reliable energy. So, by differentiating with value-adds related to energy, retailers are addressing customers’ unmet needs, and increasing their commodity sales.

Leading retailers are bundling in order to spur growth. Just Energy offers a variety of energy-related value-adds including air filters, LED bulbs and smart sprinkler controls. NRG provides numerous smart home offerings, surge protection plans and community solar. Direct Energy bundles kwh and therms with smart thermostats and related smart home products through its Hive affiliate. Award-winning retailers like Xoom and Champion have unveiled smart thermostat offerings. Whether large or small, bundling is at work for many retailers.

Bundling Decisions

Determining what to bundle is a process more than a decision. Consumers identify your brand with electricity, but it takes experimentation and exposure to match the right value-adds with a particular retail energy brand. Digital marketing is a particularly effective way to quickly and inexpensively expose customers to value-adds and gain insights.

I’m often asked about “take rates” on different bundled value-adds. In my company’s experience it’s not the product decision, per se, that drives growth. After all, conversion is a function not only of product but also of price, placement and other factors. Nevertheless, given most consumers’ low engagement with their energy usage, less expensive and simpler products are often better to bundle than more costly or complicated value-adds.

Simple low-cost products on the lower left often fare better in initial bundling efforts than more costly products on the upper right.

When Bundling Succeeds

Bundling enables growth when consumer interest intersects with consumer willingness to spend. Simply throwing a product in front of a customer and hoping they’ll pay for it yields predictably lackluster results. On the other hand, when a value-add and rate plan are thoughtfully combined by the retailer, acquisition rates increase. Hence, a retailer’s Products group is a critical player in any bundling initiatives.

Similarly, systems support is needed to effectively close bundled sales. Where the online channel is used to bundle, the check-out process must be smooth. A great bundle, even priced and placed attractively, will still come up short if check-out isn’t a positive customer experience. Indeed, check-out has been the single biggest point of abandonment in most of our work with energy bundles.

Lastly, value-adds for retention are often the most powerful and effective application for bundling for several reasons. First, more is known about the customer so that a best-fit bundle can be offered. Second, customer value can be assessed during the contract tenure and an appropriate value-add offered at renewal time. (Again, the Products group plays a key role.) Third, a retailer can build anticipation over time for selected value-adds, which also increases retention. This can best be accomplished through regular digital communication with the customer throughout their contract tenure.

Finally, it’s important to realize that bundling value-adds isn’t about giving away margin to get a customer’s commodity business. Done properly, bundling fulfills a customer’s unmet needs related to energy, so that overall margins and customer longevity both increase for the energy retailer.

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Malcolm Smith is CEO of DR2 Solutions, which provides energy retailers with the iMPACT platform for increasing retention and cross-selling energy solutions.